Looking to move to 3 Fund AA - Advice Needed

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Topic Author
eagerinvester
Posts: 12
Joined: Sun Mar 03, 2019 6:43 pm

Looking to move to 3 Fund AA - Advice Needed

Post by eagerinvester » Sun Mar 03, 2019 6:52 pm

We are looking for some advice on getting our retirement accounts into shape. I have been passively investing money into accounts since my early 20s but only recently stumbled upon Bogleheads. We are recent newlyweds so are only just starting to look at both of our investments as a total portfolio. I’m so appreciative of this wonderful resource. I’ve read the Bogleheads Guide to Investing and the Bogleheads Guide to Retirement, and feel like I’m at a point where I’m ready to start moving us towards a 3 Fund Portfolio and trying to figure out the best way to do so, knowing that our current investments are not tax efficient and, in many places, redundant.

Emergency funds: 6 months expenses
Debt: None (student loans will be paid off this month)
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 3.07% State
State of Residence: PA
Age: 35
Desired Asset allocation: 60% stocks / 35% bonds / 5% cash
Desired International allocation: 15% of stocks

Total portfolio ~$600k

Current retirement assets
Taxable
7.1% cash
5.1% Vanguard Diversified Equity Fund (VDEQX) (0.36% ER)
5.4% Vanguard Explorer Fund Investor Shares (VEXPX) (0.46% ER)
4.2% Vanguard Wellington Fund Investor Shares (VWELX) (0.25% ER)
1.7% Vanguard Prime Money Market Fund (VMMXX) (0.16% ER)

His Pension
$575-$4100/month depending on how long he stays (not currently vested, but will vest later this year at the $575 level). I didn’t include this in the percentages for our current portfolio.

His 401k Savings Plan (overseen by company, includes multiple investment managers, no ticker symbol)
Employer matches 75% of contributions up to 6%, currently investing 8%
0.4% Fixed Interest Fund (0.19% ER)
0.4% Intermediate Bond Fund (0.20% ER)
1.5% Balanced Fund (0.35% ER)
0.4% Diversified Equity Fund (0.34% ER)
1.6% Russell 3000 Index Fund (0.05% ER)
1.3% Company Common Stock Fund (0.04% ER)

Former employer 401ks:
1.6% Black Rock Life Path Index Fund 2045 (LIHIX) (0.24% ER)
7% Vanguard Target 2045 (VTIVX) (0.15% ER)

Her 403b
Employer matches up to 5%, currently contributing 10%
32% Vanguard Institutional Target Retirement 2050 Fund (VTRLX) (0.09% ER)

Her Roth IRA
30.3% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04% ER)

Contributions

New annual Contributions
$13204.50 his 401k (includes employer match)
$18636 her 403b (includes employer match)
$6000 her Roth IRA (through Backdoor Roth)
$7200 taxable

Available funds

Funds available in his 401(k) Savings Plan
Balanced Fund (0.35% ER)
Company Common Stock Fund (0.04% ER)
Diversified Equity Fund (0.34% ER)
Fixed Interest Fund (0.19% ER)
Intermediate Bond Fund (0.20% ER)
International Equity Fund (0.44% ER)
Russell 3000 Index Fund (0.05% ER)
U.S. Government Securities Fund (0.11% ER)
U.S. Small Cap Fund (0.62% ER)

Funds available in her 403(b)
TIAA-CREF Bond Index Fund (Institutional) (TBIIX) (0.12% ER)
TIAA-CREF High-Yield Fund (Institutional) (TIHYX) (0.36% ER)
TIAA-CREF International Equity Index Fund (Institutional) (TIEIX) (0.06% ER)
TIAA-CREF International Equity Fund (Institutional) (TIIEX) (0.48% ER)
TIAA-CREF Large-Cap Value Fund (Institutional) (TRLIX) (0.40% ER)
TIAA-CREF Lifecycle Index 2010 Fund (Institutional) (TLTIX) (0.25% ER)
TIAA-CREF Lifecycle Index 2015 Fund (Institutional) (TLFIX) (0.23% ER)
TIAA-CREF Lifecycle Index 2020 Fund (Institutional) (TLWIX) (0.21% ER)
TIAA-CREF Lifecycle Index 2025 Fund (Institutional) (TLQIX) (0.20% ER)
TIAA-CREF Lifecycle Index 2030 Fund (Institutional) (TLHIX) (0.20% ER)
TIAA-CREF Lifecycle Index 2035 Fund (Institutional) (TLYIX) (0.19% ER)
TIAA-CREF Lifecycle Index 2040 Fund (Institutional) (TLZIX) (0.19% ER)
TIAA-CREF Lifecycle Index 2045 Fund (Institutional) (TLXIX) (0.20% ER)
TIAA-CREF Lifecycle Index 2050 Fund (Institutional) (TLLIX) (0.20% ER)
TIAA-CREF Lifecycle Index 2055 Fund (Institutional) (TTIIX) (0.20% ER)
TIAA-CREF Lifecycle Retirement Income Fund (Institutional) (TLRIX) (0.31% ER)
TIAA_CREF Mid-Cap Growth Fund (Institutional) (TRPWX) (0.47% ER)
TIAA-CREF Mid-Cap Value Fund (Institutional) (TIMVX) (0.42% ER)
TIAA-CREF Quant Small-Cap Equity Fund (Institutional) (0.41% ER)
Vanguard Capital Opportunity Adm (VHCAX) (0.36% ER)
Vanguard Emerging Mkts Stk Ix Inst (VEMIX) (0.10% ER)
Vanguard Explorer Fund Investor (VEXPX) (0.46% ER)
Vanguard Extended Market Index Inv (VEXMX) (0.21% ER)
Vanguard Federal Money Market Fund (VMFXX) (0.11% ER)
Vanguard Global Equity Fund (VHGEX) (0.48% ER)
Vanguard Growth Index Fund Inst (VIGIX) (0.04% ER)
Vanguard High-Yield Corp Fund Inv (VWEHX) (0.23% ER)
Vanguard Inflation-Protect Sec Inv (VIPSX) (0.20% ER)
Vanguard Inst Index Fund Inst Plus (VIIIX) (0.02% ER)
Vanguard Institutional Retirement Fund 2015 (VITVX) (0.09% ER)
Vanguard Institutional Retirement Fund 2020 (VITWX) (0.09% ER)
Vanguard Institutional Retirement Fund 2025 (VRIVX) (0.09% ER)
Vanguard Institutional Retirement Fund 2030 (VTTWX) (0.09% ER)
Vanguard Institutional Retirement Fund 2035 (VITFX) (0.09% ER)
Vanguard Institutional Retirement Fund 2040 (VIRSX) (0.09% ER)
Vanguard Institutional Retirement Fund 2045 (VITLX) (0.09% ER)
Vanguard Institutional Retirement Fund 2050 (VTRLX) (0.09% ER)
Vanguard Institutional Retirement Fund 2055 (VIVLX) (0.09% ER)
Vanguard Institutional Retirement Fund 2060 (VILVX) (0.09% ER)
Vanguard Institutional Retirement Fund 2065 (VSXFX) (0.09% ER)
Vanguard Institutional Retirement Inc Fund (VITRX) (0.09% ER)
Vanguard Inter-Term Bond Index Inv (VBIIX) (0.15% ER)
Vanguard Inter-Term Treasury Inv (VFITX) (0.20% ER)
Vanguard International Growth Adm (VWILX) (0.32% ER)
Vanguard International Value Fund (VTRIX) (0.38% ER)
Vanguard Long-Term Bond Index (VBLTX) (0.15% ER)
Vanguard Long-Term Invest-Gr Inv (VWESX) (0.22% ER)
Vanguard Long-Term Treasury Inv (VUSTX) (0.20% ER)
Vanguard Mid-Cap Growth Fund (VMGRX) (0.36% ER)
Vanguard Mix-Cap Index Fund Inv (VIMSX) (0.17% ER)
Vanguard Morgan Growth Fund Inv (VMRGX) (0.37% ER)
Vanguard PRIMECAP Fund Admiral (VPMAX) (0.31% ER)
Vanguard Real Estate Idx Investor (VGSIX) (0.26% ER)
Vanguard Selected Value Fund (VASVX) (0.36% ER)
Vanguard Small-Cap Growth Idx Inv (VISGX) (0.19% ER)
Vanguard Small-Cap Index Fund Inv (NAESX) (0.17% ER)
Vanguard Small-Cap Value Index (VISVX) (0.19% ER)
Vanguard Total Stock Mkt Idx Inst Plus (VSMPX) (0.02% ER)
Vanguard Total Bond Mkt Index Inst (VBTIX) (0.04% ER)
Vanguard Total Intl Stock Ix Inv (VGTSX) (0.17% ER)
Vanguard U.S. Growth Fund Investor (VWUSX) (0.42% ER)
Vanguard Value Index Fund Inv (VIVAX) (0.17% ER)
Vanguard Wellesley Income Fund Inv (VWINX) (0.23% ER)
Vanguard Wellington Fund Admiral (VWENX) (0.17% ER)
Vanguard Windsor Fund Admiral (VWNEX) (0.21% ER)
Vanguard Windsor II Fund Adm (VWNAX) (0.25% ER)

Questions:

1. Our asset allocation is too stock heavy, currently about a 87% stock (8% int’l) / 4% bonds / 9% cash split. Our goal is closer to 60/35/5. To get there, are we better off moving around existing investments to achieve this asset allocation or stop dividend reinvestment and direct dividends and new investment money into bonds to start to bring our bond percentage up? Or a combination of the two - in which case, which current investments should be moved?

2. We want to move to have the majority of stock investments in index funds. Should we move some of the existing mutual fund investments into an index fund or keep what we have but stop reinvestment and direct dividends and new investments to an index fund? We’re aware some of these funds we’re already invested in may hold redundant stocks so we’re trying to understand the best and most tax efficient way to broaden our diversity of holdings to get to this goal.

3. We understand that my Roth IRA should probably hold bond funds instead of the total stock since bonds are best held in tax advantaged accounts. Should we convert 100% of this account to a total bond index, allocate a percentage to bonds, move to a target date fund, or keep as is?

4. Are we missing any red flags?

Thank you in advance for any advice! This community is wonderful and I’ve already learned so much.

Living Free
Posts: 351
Joined: Thu Jul 19, 2018 7:31 pm

Re: Looking to move to 3 Fund AA - Advice Needed

Post by Living Free » Sun Mar 03, 2019 8:51 pm

eagerinvester wrote:
Sun Mar 03, 2019 6:52 pm

1. Our asset allocation is too stock heavy, currently about a 87% stock (8% int’l) / 4% bonds / 9% cash split. Our goal is closer to 60/35/5. To get there, are we better off moving around existing investments to achieve this asset allocation or stop dividend reinvestment and direct dividends and new investment money into bonds to start to bring our bond percentage up? Or a combination of the two - in which case, which current investments should be moved?
I suppose it's personal to decide one's asset allocation, but I think that only 60% stocks at age 35, for someone who also has a pension, is a bit on the too conservative side.
eagerinvester wrote:
Sun Mar 03, 2019 6:52 pm
2. We want to move to have the majority of stock investments in index funds. Should we move some of the existing mutual fund investments into an index fund or keep what we have but stop reinvestment and direct dividends and new investments to an index fund? We’re aware some of these funds we’re already invested in may hold redundant stocks so we’re trying to understand the best and most tax efficient way to broaden our diversity of holdings to get to this goal.
I think the first thing that you should do is determine your cost basis in the taxable accounts. That will determine how much you'll have to pay in gains if you want to get out of the taxable investments (see https://www.bogleheads.org/wiki/Capital ... stribution.
You can buy and sell all you want within your tax advantaged accounts, so if you're unable to adjust things in taxable due to having a lot of gains you might be only adjusting within your retirement accounts.
Yes, if you no longer wish to be in those taxable funds and can't sell them due to having large gains, then you should re-invest the dividends elsewhere.

eagerinvester wrote:
Sun Mar 03, 2019 6:52 pm
3. We understand that my Roth IRA should probably hold bond funds instead of the total stock since bonds are best held in tax advantaged accounts. Should we convert 100% of this account to a total bond index, allocate a percentage to bonds, move to a target date fund, or keep as is?
I'd hold stocks in the Roth IRA. Put your bonds in the 401ks or other tax deferred accounts, not taxable or tax free.

Topic Author
eagerinvester
Posts: 12
Joined: Sun Mar 03, 2019 6:43 pm

Re: Looking to move to 3 Fund AA - Advice Needed

Post by eagerinvester » Sun Mar 03, 2019 9:30 pm

Thanks Living Free.

I’m not opposed to putting more in stocks. I had read the recommendation of holding your age in bonds. I appreciate that with a pension we can probably afford to be a little more aggressive if we want to.

For the Roth, am I understanding your recommendation that stocks are fine because they will grow tax free, so put bonds in other retirement options that will be taxed upon withdrawal because bonds will generate smaller taxes?

Are there any issues with the redundancy of my current stock holdings in those taxable accounts? The vast majority, over 90%, are long term holdings. Short term gains are a little over $1k

Living Free
Posts: 351
Joined: Thu Jul 19, 2018 7:31 pm

Re: Looking to move to 3 Fund AA - Advice Needed

Post by Living Free » Mon Mar 04, 2019 9:39 am

eagerinvester wrote:
Sun Mar 03, 2019 9:30 pm
For the Roth, am I understanding your recommendation that stocks are fine because they will grow tax free, so put bonds in other retirement options that will be taxed upon withdrawal because bonds will generate smaller taxes?
Yes

eagerinvester wrote:
Sun Mar 03, 2019 9:30 pm
Are there any issues with the redundancy of my current stock holdings in those taxable accounts? The vast majority, over 90%, are long term holdings. Short term gains are a little over $1k
Redundancy is not so much an issue per se as the big drawback of redundancy is really just needless complexity. The drawbacks to those funds in taxable would include that they seem to have higher turnover than something like a total stock market index (so they might trigger more capital gains) and you have bonds in the wellington fund.
In addition to turning off the re-investment of dividends you can also change your cost basis to specific ID to see if there are any "lots" which might have a loss or at least no gain to get rid of those.

bdpb
Posts: 1567
Joined: Wed Jun 06, 2007 3:14 pm

Re: Looking to move to 3 Fund AA - Advice Needed

Post by bdpb » Mon Mar 04, 2019 7:33 pm

eagerinvester wrote:
Sun Mar 03, 2019 6:52 pm
Tax Rate: 24% Federal, 3.07% State

New annual Contributions
$13204.50 his 401k (includes employer match)
$18636 her 403b (includes employer match)
$6000 her Roth IRA (through Backdoor Roth)
$7200 taxable

Taxable
7.1% cash
5.1% Vanguard Diversified Equity Fund (VDEQX) (0.36% ER)
5.4% Vanguard Explorer Fund Investor Shares (VEXPX) (0.46% ER)
4.2% Vanguard Wellington Fund Investor Shares (VWELX) (0.25% ER)
1.7% Vanguard Prime Money Market Fund (VMMXX) (0.16% ER)

Funds available in his 401(k) Savings Plan
Russell 3000 Index Fund (0.05% ER)

Funds available in her 403(b)
TIAA-CREF Bond Index Fund (Institutional) (TBIIX) (0.12% ER)
TIAA-CREF International Equity Index Fund (Institutional) (TIEIX) (0.06% ER)
Vanguard Inter-Term Bond Index Inv (VBIIX) (0.15% ER)
Vanguard Inter-Term Treasury Inv (VFITX) (0.20% ER)
Vanguard Total Stock Mkt Idx Inst Plus (VSMPX) (0.02% ER)
Vanguard Total Bond Mkt Index Inst (VBTIX) (0.04% ER)
Vanguard Total Intl Stock Ix Inv (VGTSX) (0.17% ER)
At these tax rates I would max the 401k and 403b contributions, 19k each. Then max Roth contributions for both. No need for taxable contributions. Sell taxable funds to max tax preferred accounts if needed.

Your taxable account is likely not very tax efficient. Total US and Total Intl index funds belong in your taxable account. I would try to sell everything currently in taxable in a timely manner and buy Total market index funds. You will save on taxes and expenses in the long run.

I would recommend the above funds in 401k and 403b to complete portfolio.

Topic Author
eagerinvester
Posts: 12
Joined: Sun Mar 03, 2019 6:43 pm

Re: Looking to move to 3 Fund AA - Advice Needed

Post by eagerinvester » Mon Mar 25, 2019 4:42 pm

Thank you all for your advice. I’m definitely looking at moving taxable funds into VTSAX and VTIAX. My cost basis method right now for those taxable funds are average cost. I started investing in them in August of 2011 so most of the shares are covered shares. For the 2011 shares that are non covered, I have the statements from Vanguard so I know at what price I bought them, and it looks like all of them would have gains, not losses.

Before I go ahead and change to SpecID to see if I have any losses I can sell off the bat, is there anything I should be aware of that I’m missing by switching to SpecID besides keeping a record of which shares I sell? I’m not trying to tax loss harvest, just sell the lots I have at a loss that are in my taxable account to try and lessen my tax burden.

Measure twice, cut once, just making sure I’m doing this right.

Thanks!

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